In today’s world of heightened uncertainties, insurance is imperative. Given the growth prospects of the insurance industry amid the high-interest rate environment, it could be wise to add fundamentally strong insurance stocks The Progressive Corporation (PGR), Fairfax Financial Holdings Limited (FRFHF), and Universal Insurance Holdings, Inc. (UVE) to one’s watchlist.
Before discussing these stocks in detail, let’s discuss why the insurance industry is an attractive investment destination.
Insurance plays a crucial role in protecting individuals or businesses against unforeseen losses. Conservative investors often find insurers attractive as these businesses are known to perform steadily irrespective of economic cycles as the demand for insurance products is almost inelastic.
Property and casualty insurance is an umbrella term under which several forms of insurance exist, like homeowners’ insurance, renters’ insurance, auto insurance, etc. The property and casualty insurance industry is well-positioned for growth due to growing awareness about insurance benefits and enhanced risk prediction efficiency.
The global property and casualty insurance market is expected to rise at a CAGR of 6.7% from 2023 to 2033. Investors’ interest in the property and casualty insurance industry is evident from the Invesco Property & Casualty Insurance ETF’s (KBWP) 7% returns over the past three months.
The current high-interest rate environment bodes well for insurers' profitability. Insurers hold long-term safe bonds to meet their promised returns to policyholders. In a high-interest rate environment, their investments yield higher returns. Moreover, a high-interest rate environment leads to improved underwriting margins.
Considering this favorable industry backdrop, let’s evaluate the three Insurance - Property & Casualty picks, beginning with the third choice.
Stock #3: The Progressive Corporation (PGR)
PGR provides personal and commercial auto, personal residential and commercial property, general liability, and other specialty property-casualty insurance products and related services. It operates in three segments: Personal Lines, Commercial Lines, and Property.
PGR’s revenue grew at a CAGR of 11.8% over the past three years. Its total assets grew at a CAGR of 10.9% over the past three years. In addition, its levered FCF grew at a CAGR of 49.8% in the same time frame.
PGR’s net premiums earned for the third quarter ended September 30, 2023, rose 20.1% year-over-year to $14.89 billion. Its total revenues increased 21.8% year-over-year to $15.56 billion. The company’s net income available to common shareholders increased 846.3% year-over-year to $1.11 billion. Also, its EPS came in at $1.89, representing an increase of 845% year-over-year.
For the quarter ending December 31, 2023, PGR’s EPS and revenue are expected to increase 48.8% and 16.9% year-over-year to $2.24 and $14.56 billion, respectively. Over the past year, the stock has gained 29.7% to close the last trading session at $159.53.
PGR’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #7 out of 56 stocks in the Insurance – Property & Casualty industry. It has an A grade for Momentum and a B for Growth, Stability, and Sentiment. Click here to see the other ratings of PGR for Value and Quality.
Stock #2: Fairfax Financial Holdings Limited (FRFHF)
Headquartered in Toronto, Canada, FRFHF provides property and casualty insurance, reinsurance, and investment management services in the United States, Canada, Asia, and internationally. The company operates through Property and Casualty Insurance and Reinsurance, Life insurance and Run-off, and Non-Insurance companies segments.
FRFHF’s revenue grew at a CAGR of 17.3% over the past three years. Its EBITDA grew at a CAGR of 184.1% over the past three years. In addition, its total assets grew at a CAGR of 5.7% in the same time frame.
FRFHF’s net premiums written for the third quarter ended September 30, 2023, increased 4.8% year-over-year to $5.88 billion. The company’s net earnings rose 103.7% year-over-year to $1.19 billion. In addition, its EPS came in at $42.26, representing an increase of 118.9% year-over-year.
Analysts expect FRFHF’s EPS and revenue for fiscal 2023 to increase 262.2% and 13.1% year-over-year to $157.50 and $31.73 billion, respectively. It surpassed Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 68% to close the last trading session at $909.83.
FRFHF’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
Within the same industry, it is ranked #6. It has an A grade for Momentum and Sentiment and a B for Value and Stability. To see the other ratings of FRFHF for Growth and Quality, click here.
Stock #1: Universal Insurance Holdings, Inc. (UVE)
UVE operates as an integrated insurance holding company. The company develops, markets, and underwrites insurance products for personal residential insurance, including homeowners, condo unit owners, and renters/tenants, and provides allied lines, coverage for other structures, personal property, liability, and personal articles coverages.
UVE’s revenue grew at a CAGR of 9% over the past three years. In addition, its total assets grew at a CAGR of 7.7% in the same time frame. In addition, its levered FCF grew at a CAGR of 4.8% in the same time frame.
For nine months ended September 30, 2023, UVE’s total revenues increased 13.9% year-over-year to $1.02 billion. Its adjusted operating income came in at $66.28 million, compared to an adjusted operating loss of $38.31 million in the year-ago period.
The company’s adjusted net income available to common stockholders stood at $46.01 million, compared to an adjusted net loss of $34.71 million in the prior-year period. In addition, its adjusted EPS came in at $1.51, compared to an adjusted loss per share of $1.12 in the prior-year period.
UVE’s EPS and revenue for the quarter ending March 31, 2024, are expected to increase 30.4% and 5.9% year-over-year to $1.03 and $335.20 million, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 63.9% to close the last trading session at $16.22.
UVE’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Value. It is ranked #3 in the Insurance – Property & Casualty industry. Click here to see the other ratings of UVE for Growth, Stability, Sentiment, and Quality.
What To Do Next?
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PGR shares were unchanged in premarket trading Wednesday. Year-to-date, PGR has gained 23.35%, versus a 19.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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